Macroecon Final

Which of the following is correct concerning opportunity cost?

Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway

When an Egyptian firm purchases a center mixer from Slovakia,

Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is unaffected, Slovakian net exports increase, and Slovakian GDP increases

At a given real exchange rate, which of the following, by itself, would increase the supply of dollars in the market for foreign-currency exchange?

U.S. citizens want to buy more foreign bonds

If the dollar amount appreciates because of speculation or government policy

aggregate demand shifts left. If other countries experience recessions, aggregate demand in the U.S. also shifts left.

Suppose the monetary neutrality and the Fischer effect both hold and the money supply growth rate has been the same for a long time. Other things the same and a higher money supply growth would be associated with

both higher inflation and higher nominal interest rates

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

buy bonds to lower interest rates

If a U.S. resident purchases a foreign bond, her transactions are included

in the U.S. demand for loanable funds and the supply of dollars in the market for foreign currency exchange

According to the liquidity preference theory, an increase in the overall price level of 10%

increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded

If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. rate interest rate

increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases

The source of hyperinflations is primarily

increasing in money-supply growth

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

increasing the money supply, which lowers interest rates

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more exports

its trade deficit rose

Assume the MPC is 0.625. Assuming only the multiplier effect matters, a decrease in government purchases of $10 billion will shift the aggregate demand curve to the

left by about $26.7 billion

A reduction in U.S. net exports would shift U.S. aggregate demand

leftward. In an attempt to stabilize the economy, the government could cut taxes.

Which of the following is the most likely result from an increase in a country's government budget surplus?

lower imports

Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. What happens to the interest rate?

the interest rate rises

People choose to hold a smaller quantity of money if

the interest rate rises, which causes the opportunity cost of holding money to rise

Gross domestic product measures two things at once:

the total income of everyone in the economy and the total expenditure on the economy's out of goods and services

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

$1 trillion and $2 trillion, respectively

The country of Hykenia does not trade with any other country. Its GDP is $20 billion. Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments. Consumption equals $15 billion and investment equals $2 billion. What is the public saving in Hykenia, and what is the value of the goods and services purchased by the government of Hykenia?

-$2 billion and $3 billion

In Ireland, a pint of beer costs 2.2 Irish pounds. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .5 pounds per Australian dollar, what is the real exchange rate?

.91 pints of Irish beer per pint of Australian beer

If a $1,000 increase in income leads to a $750 increase in consumption expenditures, then the marginal propensity to consume is

0.75 and the multiplier is 4

If at a given real interest rate desired national saving would be $50 billion, domestic investment would be $40 billion, and net capital outflow would be $20 billion, then at that real interest rate in the loanable funds market there would be a

shortage. The real interest rate would rise

If the reserve ratio is 4%, then the money multiplier is

25

Exchange rates are 120 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A bottle of beer in New York costs 6 dollars, 1200 yen in Tokyo, 7.2 euro in Munich, and 50 pesos in Cancun. Where is the most expensive and the cheapest beer in that order?

Tokyo, Cancun

Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

capital flight from the U.S.

If a country has negative net capital outflows, then its net exports are

negative and its saving is smaller than its domestic investment

Minimum wage law which is not true

minimum-wage laws affect all workers

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5% to 5.25%," a more precise account of the Fed's action would be as follows:

"Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25%"

Kristi purchased one share of Genuine Co. stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50%. The tax rate on nominal capital gains is 50%. What was the tax on Kristi's nominal capital gain?

$100

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007?

$2.50

Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to U.S. GDP for the year?

$22,000

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

$37.11

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

$39,097.74

A country has national saving of $60 billion, government expenditures of $30 billion, domestic investment of $40 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

$60 billion

If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be

$60 billion

Suppose one year ago the price index was 120 and Mark purchased $20,000 worth of bonds. One year later the price index is 126. Mark redeems his bonds for $22,250 and is in a 40% tax bracket. What is Mark's real after-tax rate of interest to the nearest tenth of a percent?

1.8%

The consumer price index was 225 in 2006 and 234 in 2007. The nominal interest rate during this period was 6.5%. What was the real interest rate during this period?

2.5%

If purchasing power parity holds, a bushel of rice costs $10 in the US, and the nominal exchange rate is 2 Thai bhat per dollar, what is the price of rice in Thailand?

20 bhat

Suppose the interest rate is 8%. Consider three payment options: 1. $200 today 2. $220 one year from today $240 two years from today What is true?

3 has the highest percent value and 1 has the lowest

Suppose that a worker in Boatland can produce either 5 units of wheat of 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 30 workers in each country. No trade occurs between the two countries. Boatland produces and consumes 75 units of wheat and 375 units of fish per year while Farmland produces and consumes 375 units of wheat and 75 units of fish per year. If trade were to occur, Boatland would trade 90 units of fish to Farmland in exchange for 80 units of what. If Boatland now completely specializes in fish production, how many units of fish could it now consume along with the 80 units of imported wheat?

660 units

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Consumers decide to decrease consumption and work more

For an imaginary economy, the consumer price index was 62.50 in 2004, 100.00 in 2005, and 160.00 in 2006. What is true?

If the basket of goods that is used to calculate the CPI cost $80 in 2004, then the basket of goods cost $128 in 2005.

Assume the money market is always in equilibrium, and suppose r1=0.8; r2=.12; Y1=13,00; Y2=10,000; P1=1; P2=1.2. Which of the following statements is correct?

If the velocity of money is 4 when r=r2, then the quantity of money is $3,000

Given a nominal interest rate of 8%, in which of the following cases would you earn the highest after-tax real interest rate?

Inflation is 3%; the tax rate is 40%

Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40% and prices rose by 100%. What happened to real GDP per person?

It increased, but it less than doubled

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. What is true?

Neither country could gain trade with each other because neither one has a comparative advantage

In which of the following cases was the inflation rate 10% over the last year?

One year ago the price index had a value of 120 and now it has a value of 132

Consider the following three items of spending by the government: (1) the federal government pays a $500 unemployment benefit to an unemployed person; (2) the federal government makes a $2,000 salary payment to a Navy lieutenant; (3) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman. Which of these payments contributes directly to government purchases in the national income accounts.

Only items (2) and (3)

New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, autoworkers accept lower wages, and automobile insurance becomes more expensive?

Price will fall

In the U.S., a digital camera costs $150. The same camera in London sells for 60 pounds. If the exchange rate is .50 pounds per dollar, then which of the following is correct?

The real exchange rate is greater than 1. A person in London with $150 could exchange them for pounds and have more than enough to buy the camera.

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

a decrease in the supply of loanable funds

You bought some shares of stock and, over the next year, the price per share increased by 5%, as

a nominal gain, but no real gain, and you paid taxes on the nominal gain

The term hyperinflation refers to

a period of very high inflation

Historical evidence for the U.S. economy indicates that

changes in real GDP over the business cycle are largely attributable to changes in the investment over the business cycle

Country A has a population of 1,000, of whom 700 worked an average of 8 hours a day and had a productivity of 2.5. Country B has a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. The country with the higher real GDP was

country A, and the country with higher real GDP per person was country B

If inflation is higher than what was expected,

creditors receive a lower real interest than they had anticipated

If the reserve ratio is 15%, and banks do not hold excess reserves, and people only hold deposits and no currency, then when the Fed sells $65 million of bonds to the public, bank reserves

decrease by $65 million and the money supply eventually decreases by $433.33 million

Deflation

decreases income and reduces the ability of debtors to pay off their debts

If the government of Colombia made policy changes that increased national saving, the real exchange rate of the peso would

depreciate and Columbian net exports would rise

An economic contraction caused by a shift in aggregate demand causes prices to

fall in the short run, and fall even more in the long run

If U.S. residents want to buy more foreign bonds, then in the market for foreign-currency exchange the exchange rate

falls and the quantity of dollars traded rises

If people decide to hold more currency relative to deposits, the money supply

falls. The larger the reserve ratio is, the more the money supply falls

Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S.

foreign direct investment that increases U.S. net capital outflow

In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in

foreign portfolio investment

A circular-flow diagram is a model that

helps to explain how participants in the economy interact with one another, helps to explain how the economy is organized

In a particular country in 1998, the average worker needed to work 25 hours to product 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

increased by 6.25% between 1998 and 2008

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve

If the Fed conducts open-market sales, which of the following quantities increase(s)?

interest rates, but not investment or prices

U.S. Net Capital Outflow

is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market

In the long run, the level of output

is determined by supply-side facors

In the long run, the level of output

is determined by supply-side factors

Suppose the price of a quart of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10. If the CPI rises from 150 to 175, then people will likely buy

less milk and fewer T-shirts

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because

monetary neutrality would mean the prices should have risen, but production should not have changed

An income rises

money demand rises, so the interest rate rises

Inflation is

more about the value of money than about the value of goods

During recessions, automatic stabilizers tend to make the government's budget

move towards deficit

A country has a trade deficit. Which of the following must also be true?

net capital outflow is negative and domestic investment is larger than saving

A Mexican flour mill buys wheat from the US and pays for it with pesos. Other things the same, Mexican

net exports decrease, and U.S. net capital outflow increases

A japanese firm buys lumber from the U.S. and pays for it with yen. Other things the same, Japanese

net exports decrease, and U.S. net capital outflow increases

Unemployment Rate=

number of unemployed/ (number of employed + number of unemployed) * 100

If a country has a positive net capital outflow, then

on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds

If the Fed conducts open-market purchases, then which of the following quantities increase(s)?

price and investment spending, but not interest rates

In which of the following cases would the quantity of money demanded be smallest? r=.07, P=1 r=.05, P=1 r=.04, P=1.2 r=.04, P=1

r=.07, P=1

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions

raise both U.S. net exports and U.S. net capital outflows

Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of oil are discovered in the country, then in the short-run

real GDP will rise and the price level might rise, fall, or stay the same

If at a given real interest rate desired national saving would be $50 billion, domestic investment would be $40 billion, and net capital outflow would be $20 billion, then at that real interest rate in the loanable funds market there would be a

shortage. the real interest rate would rise

The key determinant of a standard of living in a country is

the amount of goods and services produced from each hour of a worker's time

If the price of Spanish olives imported into the United States decreases, then

the consumer price index will decrease, but the GDP deflator will not decrease

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

the demand for loanable funds would shift right

A Big Mac in Japan costs 240 yen while it costs $3 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

the price of Big Macs in the U.S. falls, the nominal exchange rate falls

If there are sticky wages, and the price level is greater than what was expected, then

the quantity of aggregate goods and services supplied rises, as shown by a movement to the right along the short-run aggregate supply curve

We depart from the assumptions of classical economics when we focus on the relationship between

the quantity of output and the price level

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve

In the open-economy macroeconomic model, if the supply of loanable funds shift right, then

the supply of dollars in the market for foreign-currency exchange shifts right

The saying "Money is a veil." means that

while nominal variables are the first thing we may observe about an economy, what's important are the real variables and the forces that determine them

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

would decrease and investment would increase